Examples of Real World Negotiating Techniques

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Sometimes people struggle with how to employ negotiating tactics that they read about in real world situations.  The BP community has probably collectively negotiated more real estate deals than any other group in the history of time.  We should share some of the techniques we've used and how things turned out so that others can learn by seeing some real world examples.  I'll start.

We bought a SFR a couple months ago and I used a couple specific techniques in the negotiation. Higher authority and specific number. Here's how it went. After opening the negotiation the seller countered a number to us. When we countered I used this specific language:

"We've talked with our banker about the repairs we're going to need to make and the most we can offer is $71,800.  We're buying this house as an investment and that's the best we can do.  We'll take it as is.  You can stop painting and any other work you're doing."

By invoking the higher authority of the banker we made it seem like it's out of our hands.  Most people are constrained by what a bank is willing to lend them, so this use of a higher authority figure will be very familiar to most people.

By using a very specific offer number of $71,800 it seems like we've really done a lot of working figuring out what it's going to take to make this deal work.  In reality the number was arbitrary, but within the bounds of what I was willing to accept on this deal.

The combination of these techniques leaves the impression that we've done a lot of work on getting to this point and this is it.  It's a nuanced way of saying "take it or leave it" without actually using those words.  The seller accepted our offer.

Now your turn.  Share some examples of negotiating techniques you've used in the real world and how they turned out.

Was it true that your banker limited your offer?  Personally, I don't lie to try to close a deal.

I offer cash, in November or December, for high DOM properties.  

I never said the banker limited our offer.  I simply mentioned that we talked with our banker.  The seller drew their own conclusions.  I had, in fact, talked with one of the bankers we use to make sure he would be on board with this deal.

You don't lie to try to close a deal? You don't think the sellers "lie" when they negotiate? Telling the seller your best and highest is $100k when you are willing to go up to 110k is not lying. Its negotiating. And if you don't think the seller is doing the same thing then you're leaving money at the table.

I'm not suggest you tell the seller that their house has mold in it to get them to come down on price. That would be a lie that would be unethical and that I would agree.

But telling a seller that the bank said the most they would do is 100k even if they would go higher is negotiating. I think a seller would eat your lunch if you were to tell them exactly how high you'd go. You'd never get them to come down with that technique.  That just makes no sense......

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In terms of my techniques, I have a couple.

1) For non hud deals, if the seller counters, I ALWAYS counter with a higher number - even though my counter is usually only 500 to 1k. Much like Wade's reasoning above, I want them to see that I'm locked into my number. But I also want them to see that I'm willing to move a little so I'm not just throwing low ball offers out there to see if they'll stick. I'm throwing what I perceive as a reasonable offer and then I'm willing to negotiate some to see if there's a deal to be had.

You'd be surprised how a seller's first counter tends to only be 1k to 2k off their list. And their second counter might actually come down to something we can make work.  I've picked up a few deals like this over the years.  Makes no sense why they do it on their second counter. But its worked extremely well for me in the past so I've kept doing it.

Believe it or not, it was just pure luck that I picked up on that one. Had an offer where we were quite a bit apart (list was 26k or 27k higher than my offer).  They countered my offer by dropping down 2k. I felt like their house was overpriced so just to be a nuisance, I countered back and added 500 bucks to my offer. :-)    Then they dropped their price 17 or 18k.  All in the same day. I think we ended up splitting the difference and I got it just at my max number. Who would have guessed..... :-)

2) Another negotiating technique is in earnest money and closing time. I use a hard money to close and he can close in 10 days if I need to.  I recently had a house that I put in an offer at 128k. House was listed at 155k and was in near move in condition (had two price drops from 179k originally so I felt they were ready to move). They then said multiple bids and asked for best and highest. 128k was my absolutely max I could do. So I bumped the earnest money from 1k to 5k and put down a 21 day close.

I knew that the house had been under contract once before and it had fallen though. So I thought the seller might be spooked with that happening again and used the higher earnest money and quick close to get them to see I was positive I could close. Got the house (actually closed on it today).

But that is one way to negotiate an offer without bumping up your offer price. It definitely sends a message to the seller if they're looking at offers with financing. 

Higher earnest money is a great example @Mike H.   In the end it costs you nothing but helps address a concern for the seller.

Originally posted by @Wade Sikkink :

I never said the banker limited our offer.  I simply mentioned that we talked with our banker.  The seller drew their own conclusions.  I had, in fact, talked with one of the bankers we use to make sure he would be on board with this deal.

 That isn't even splitting hairs.  It is splitting the hair on a hair.

People need to determine their own ethical compass.  I would not do what you did, not would I do business with you.

Your mileage may vary.

Well @Richard C. let's just suffice it to say that you consider negotiating to be unethical and not disclosing your positions to be lying.  You must really have it in for wholesalers that put a house under contract that they have no intention of buying themselves.

Best of luck to you.

"ethical compass."   In this Business ?????   That's funny.

Clearly he's never read a single book on negotiating or else he wouldn't suggest such things. Some people are just at different wave lengths than others. I don't even have a clue how he can possibly suggest that your initial post was somehow unethical.   Thats not what 99.9% of reasonable people would believe.

But I once had somebody on BP try telling me that chicago did not have a violence problem even though I posted a reference to an article from the chicago tribune just a week earlier saying that killings were at a record high for the area.  

To be honest, someone like that shouldn't have said anything if they didn't want to contribute to the post to begin with. Must have had nothing to do given how they probably aren't able to get many deals with those negotiating tactics. :-)

If you can find the reason for the sale (more so during holidays) you can position your offer to provide them a better value. Value and price aren't always the same but it can be hard to see what's actually valuable to the sellers.

Time is often something valuable that some people have a hard time putting a price tag on. One way around this and actually key part of human nature is giving a reason. Example:

Divorce force sale, list price below market 30% multiple units.

Offer list price, 20% down, pre-approval letter, 5% ED, 10 day inspection, 30 day close. Expect counter.

Increase offer 5% and keep all other the same. Let seller keep all sec deposits and prorated rents. Have realtor explain to other agent this is with respect to their time and to help make sale easier for all parties. The deposits probably arent that much and depending on closing date it could be literally only a few days of rent. Sellers probably expected to lose that so by letting them "keep" the "entire" month rent it is probably more valuable than the dollar figure attached to it.

Just watch any little kid talk with an adult who says "no". Learn from the masters! Mostly this means wearing the other person down while keeping in their good graces.
Originally posted by @Wade Sikkink :

Well @Richard C. let's just suffice it to say that you consider negotiating to be unethical and not disclosing your positions to be lying.  You must really have it in for wholesalers that put a house under contract that they have no intention of buying themselves.

Best of luck to you.

 I consider lying to be unethical.  Also entirely unnecessary.  

It is very simple to say, "The most I am willing to pay is $80,000."

There is no need whatsoever to make up a conversation with a banker.

Lying is not negotiating.  It is lying.

I won't wish you luck in return.

Well this thread went off the rails.  I was hoping to hear some cool negotiating stories but instead seemed to attract a troll.  My apologies to everyone.

Originally posted by @Wade Sikkink :

Well this thread went off the rails.  I was hoping to hear some cool negotiating stories but instead seemed to attract a troll.  My apologies to everyone.

There will always be losers trolling winners. forget'm!

Before I get into a story, let me start off by saying; my early years I could not sell something if I was paying you to take it. I spent 8 months knocking doors for ADT selling security systems that they gave away for free with a year contract, I never sold a single unit... I was the worst sales person ever in the company. Needless to say I learned a lot since those days. Anyone can learn, just keep trying!

All humans are manic and emotional, we are not logical. We make deals based on emotion, not logic. If you help people settle their emotions, you will win. Don't be the pit bull, don't draw lines in the sand, instead help them help you!

For example, I don't tell people what's wrong with their house. I have them show me what's wrong with their house. As they show me the issues, I ask them how much do they think it will cost to fix each one. What I'm doing is leading them to my offer. I let them confront the fact that their house needs work on their own terms, I let them work pricing themselves while I guide them on what I've paid in other scenarios. 

When said and done, they clearly agree that a house in such a condition would take x amount to bring to market, they start lowing their asking price without me even having to ask. I've had a guy over the summer give me a tour of his home, the opening price was 95k. After he got done showing me each and every item (holes in walls, flooring, leaks, etc), he concluded the house is likely worth 80k-85k as-is, I offered him 80k, and tossed in a bonus, by saying I would pay his closing cost. Done deal!

There was another house over the summer where a older man owned a old TH that his son was just flopping out in with friends. He sent him off to rehab clinic, and the father was left with a house full of trash, and leaking roof that was so bad that the entire 2nd level drywall had collapsed. The kitchen was so dated and dirty it would have to be gutted. They owner was in debt to the HOA for $20,000 in fines and past due HOA fees, and he still owed something like 40k on the mortgage.

Using the same method I outlined above, he walked the property pointing out each issue, and each time I asked him "How much do you think that will cost to fix?", he would respond with a price, or say he did not know, and each time I would say "I replaced a xyz like that at another property this year, and it cost me $xxxx..". I would even tell him if I could do it for less than he through it cost, as that builds trust. Finally we got to the end of the tour, and I said "I know you wanted 80k for this property, but you know how much work this is going to take...", he agreed, but then asked what could I offer him, I said "truthfully, there is a lot of work here, a lot of risk for myself, I would be comfortable around 60k, how about 65K?"... He signed the contract that day.

I once bought a SFH with a well on the property, it has been sitting for 3 years vacant. I had the well tested by a lab, and submitted the results to the seller. They wanted 115k for the property, they where a investment firm, had no reason to budge.. I was offering 50k.. The test came back positive for e.coli, wells will almost always test positive if they sit for a long amount of time. Needless to say, they tossed in the towel after that, because by law they would have to disclosed that to all purchasers moving forward, and they knew their deal was dead after that. I snapped it up for 50k, and we went to Lowe's and bought 6 gallons of bleach to shocked the well... rented it for years with zero cash in the game, and netted over $104,000.00 when said and done.

Plenty more stories, but I'll leave room for others!

@Levi T.   I once owned an alarm company holy cow.. LOL you know what I mean.. did not last long for my moral compass.

when I actually did deals at street level.. as an agent I have to say I was taught by some of the best in the business  ( land salemen)... at the end of the transaction my clients would say you know I bought from you because your not high pressure.. although I led them through each phase in a way they simply did not realize it.. with the kind of tack you talking about and how to lead a conversation.. Never fibbing.. just telling them how we do business. .people need to be told other wise they wont' make a decision.

if you just keep asking them what do they think you will get no where when your trying to close.

Originally posted by @Jay Hinrichs :

@Levi T.  I once owned an alarm company holy cow.. LOL you know what I mean.. did not last long for my moral compass.

when I actually did deals at street level.. as an agent I have to say I was taught by some of the best in the business  ( land salemen)... at the end of the transaction my clients would say you know I bought from you because your not high pressure.. although I led them through each phase in a way they simply did not realize it.. with the kind of tack you talking about and how to lead a conversation.. Never fibbing.. just telling them how we do business. .people need to be told other wise they wont' make a decision.

if you just keep asking them what do they think you will get no where when your trying to close.

Agreed. Leading the conversation with questions is powerful, but at some point you have to take control by converting from a listener, to a leader, normally talking smooth and slowly as it’s calming.

I also like to use elephant in the room vs pit bulling. Meaning we point out the obvious to get people to settle down or get over a wall that is going to block them from reaching the next stage. For example, maybe they are getting foreclosed on, and that’s a hard topic for them to cross.. so I would say something like “ I know the bank is going to foreose on you in two weeks, we can help with that if we can agree on a price today. How about $$$$$?”. By addressing the issue, then making an offer or a counter question, you can get people past what is clearly blocking them from doing a deal.

Sometimes that elephant has nothing to do with the deal at all. They simple could be upset that their house has been on the market for a really long time without any decent offers. Confronting that fact will help them process it and come to terms that they are overpricing the property.

Until I found BP, I didn't really do much negotiating.  I threw out a price somewhat lower and hoped for the best.  They always took it, so I probably could have gone even lower.  lol  The best thing I ever did in "negotiating" was with a guy who had 4 duplexes on the market.  I wanted all 4, but my financial planner said No.  I was only supposed to buy 1, but he agreed I could buy 2 for the right price.  I offered the seller that I'd take 1 for a higher price or 2 for a lower price per property.  He took the lower price per property to get rid of 2.  I still have them and am happy for it, but wonder if I could have done a lot better if I'd found BP sooner...

Thanks for this thread, Wade!

One of the best houses I acquired was simply too expensive to buy and rent.  It is right next to my personal residence.  When my neighbor passed his daughter tried to sell the house for almost a year.  I helped her with some mowing or watering on the lawn once in awhile.  She offered it to me as a rental but I pointed out that the monthly payments would be almost as much as the rent and I did not have the down payment.  After the third buyer was unable to close I asked her if she needed all of the money right now or if having a large amount now would work if the property sold.  She said she wanted to sale but did not want to owner finance.  I pointed out that I could close on the property and she could walk away with over 70% of the purchase money now and the rest in 5 years (on a baloon payment) and she could get interest on the remaining money at about 10 times what the banks were paying for interest on a certificate of deposit.  The house would still be worth as much money in 5 years even if I was unable to pay I would have paid the mortgage down for 5 years.  I asked for $30K of the price to be as a second mortgage with monthly interest only payments at 2% per annum, so $50 per month.  The seller asked for $200 per month and I agreed.  Now I only financed the property on a 15 year note, so the payments were high, but you pay off 20% of the property value in 5 years using a 15 year mortgage.  At the end of 5 years I could refinance and be $340 to the good after paying the mortgage.  That assumes no increase in rent and no major interest rate increase.  I actually sold a property just before the 2nd mortgage came due and paid the second mortgage off without a refinance.  It seems getting 80% of the cash money immediately and the rest in 5 years was acceptable when they got full asking price.  The 2% interest rate made the 2nd mortgage payment really cheap.

@Wade Sikkink

Here's an actual situation for a 4plex in Las Vegas. Owner wanted $235k. I researched comps in complex directly where listing is located, and found $195k comp. I essentially made a bet with final price equals appraisal price put into real estate contract. This bet was a no lose situation. If the appraisal come back at 220k, I would go through 10 due diligence period, and back out for whatever reason within 10 days.

Appraisal come back at 205k.

Closed the deal.

Terry

All true hat we state

Contact the selling agent and put in an all cash offer 

Next day call agent asking if they have heard back, of course they have not.  

Ask the agent when they think they will because if the seller doesn’t accept our offer we don’t want to counter because we are going to put in an offer on a property at 124 Elm st with the listing agent

All of it is true   Has worked very well

Originally posted by @Terry Lao :

@Wade Sikkink

Here's an actual situation for a 4plex in Las Vegas. Owner wanted $235k. I researched comps in complex directly where listing is located, and found $195k comp. I essentially made a bet with final price equals appraisal price put into real estate contract. This bet was a no lose situation. If the appraisal come back at 220k, I would go through 10 due diligence period, and back out for whatever reason within 10 days.

Appraisal come back at 205k.

Closed the deal.

Terry

Personally we don’t buy unless we get it quite a bit under appraisal price 

@Michael Plante , when you tell the listing agent you don't want to counter and plan to put in an offer for another property if that one isn't accepted, is that other property through the same listing agent or another?  Or does it matter?

Originally posted by @Jody Schnurrenberger :

@Michael Plante, when you tell the listing agent you don't want to counter and plan to put in an offer for another property if that one isn't accepted, is that other property through the same listing agent or another?  Or does it matter?

 In my Experience i have been interested in 2 properties which were both listed by the same real estate agent at the same time 

IMO they fight harder to sell the deal to their client as they will get double commission. 

Great examples!  Thanks everyone for getting this thread back on track.  Let's hear some more great stories!

Originally posted by @Wade Sikkink :

Well this thread went off the rails.  I was hoping to hear some cool negotiating stories but instead seemed to attract a troll.  My apologies to everyone.

Next time choose a better "higher authority" ... swap out "wife" for "banker" and see who complains.

Funny, the last time I saw a thread like this one person took the position that looking out for your own interests equated to taking advantage of the other party. 

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